The non-performing loan (NPL) ratio in Romania keeps decreasing (by 3.18pp to 6.08% at the end of April), but the default risk has created a vulnerability for the country’s financial system, according to the Financial Stability Report published by the central bank on June 14.

The risk, defined as the share of current good customers who could default on their debt within the next 12 months,  is particularly high among households, the report concluded.

“Default risk is the main threat to Romania’s financial stability,” central bank governor Mugur Isarescu stressed when unveiling the report at a press conference. He referred to the financial problems faced by debtors combined with the bad faith of some of them, and he mentioned in this context the “inappropriate” recent legislation for the sector.

Masked by the decrease of the overall NPL ratio, the volume of NPLs accumulated by households increased by 13% y/y as of the end of March, according to the report.

The report’s conclusions and the governor stressing the default risk among households come amid the monetary authority’s plans to curb the maximum indebtedness ratio currently at 60%-70% (depending on the specific bank) to 35% for foreign currency loans and 50% for local currency loans (with even lower accepted indebtedness ratios for the loans with indexed interest rates). The central bank toned down expectations about the imminent enforcement of the bill, which is reportedly in an incipient stage.

Separately, the International Monetary Fund identified the rising retail mortgage lending as a potential threat.